The Rising Global Offsets Challenge

Tuesday, October 23, 2012

2

Agenda

• 3:00 pm Welcome and Introduction

George Grammas, Partner and Chair of the Aerospace &

Defense Industry Group, Squire Sanders

Henry Lavine, Retired Partner, Squire Sanders and Chair,

Sawyer & Co., LLC.

• 3:10 pm Perspectives on the Future of SatisfyingOffset Obligations

Admiral Vernon E. Clark, Retired Chief of Naval Operations,

United States Navy and Member of the Fleishman-Hillard

International Advisory Board

• 3:30 pm Half Trillion Dollar Offset Obligations andAvascent's Global Offset Obligations Report

Jon Barney, Partner, The Avascent Group

3

Agenda (cont’d)

• 3:40 pm – Panel Discussion: Satisfying OffsetObligations Through Public-Private PartnershipOpportunities

Philip Ewing (Moderator), Defense Editor, POLITICO Pro

Laura M. Creswell, Director, International Operations &

Corporate Offset, ATK

Bruce Lemkin, Founder, LEMKIN International, LLC and

former Deputy Under Secretary of the Air Force, International

Affairs

Paul A. O'Hop, Partner and Co-chair of the Renewable

Energy Industry Group, Squire Sanders

John E. Wyand, Attorney and member of the Healthcare

Industry Group, Squire Sanders

4

Perspectives on the Future of SatisfyingOffset Obligations

• Admiral Vernon E. Clark Retired Chief of Naval Operations, United States Navy

Member of the Fleishman-Hillard International Advisory

Board

5

Half Trillion Dollar Offset Obligations andAvascent's Global Offset Obligations Report

• Jon BarneyPartner, The Avascent Group

THE RISING GLOBAL OFFSETCHALLENGE

OCTOBER 23, 2012

ADDRESSING THE HALF TRILLION DOLLAR QUESTION

New Reality: With U.S. and European budgets in decline,procurements are increasingly occurring in new markets…

U.S.

$200

$300

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$800

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Rest of World

Flat Defense Budgets Growing Economic Power

Europe

$-

$100

$200

$300

$400

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$100

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050SOURCE:

Countries included: Australia, India, Japan, Malaysia, Pakistan,Singapore, South Korea, Taiwan, Indonesia, Thailand, Saudi Arabia,Egypt, Iraq, UAE, Qatar, Kuwait, Jordan, Turkey Algeria, Morocco,South Africa, Oman, Mexico, Colombia, Chile, Brazil

+ All figures in Billions of USD

…which has led to a new set of drivers and challenges for stakeholders

Companies focusing on global expansion due to US andEuropean belt-tightening

• Challenge: Limited experience by US and European A&Dcompanies in approaching markets truly globally

Increasing expectations by governments to produce economicdevelopment results

• Challenge: Delivering positive economic results andcommunicating these results to citizens

Evolving country organizations that are aligning offsets withnational economic development goals

• Challenge: Differing expectations between companies andcountries regarding in-country investment

What does this mean?

New Risks, Missed Opportunities

Significant change to the business

Increased scrutiny = increased risk to reputation

Positive outcomes falling short

• Current offset approach is opaque, inefficient, not

strategic, and lacking in data

• Suboptimal for Western companies, countries, local

partners, and citizens

• Now is the time to rethink how offsets are constructed,

communicated, and discharged

• Current offset approach is opaque, inefficient, not

strategic, and lacking in data

• Suboptimal for Western companies, countries, local

partners, and citizens

• Now is the time to rethink how offsets are constructed,

communicated, and discharged

A New Approach and Methodology – Avascent Analytics

050

Avascent Analytics

• Comprehensive web basedforecasting tool of global A&Dmarkets

• Market size, segmentation,forecasted growth, competitormarket share, and new opps

• USA and 35 global countries,across C4I, Sensors,Weapons, Platforms,and Services

Offset Data & Methodology

• Bottom-up approach

• Obligations analyzed byyear, country, andcompany

• Group past and forecastedcontractor sales by country

• Apply offset threshold andrules for each country

How large is this challenge today?

www.strategicoffsets.com

How large will this challenge become?

www.strategicoffsets.com

Obligations are growing worldwide, with MENA and Asia/Pacificrepresenting the largest volume and LatAm the fastest growth

Latin America Obligations

$-

$5

$10

$15

$20

$25

Millio

ns 9.6%

Europe & Canada Obligations

$-

$5

$10

$15

$20

$25

Millio

ns 4.6%

Asia/Pacific Obligations

$-

$5

$10

$15

$20

$25

Millio

ns 6.5%

MENA Obligations

9.0%

$-

$5

$10

$15

$20

$25

Millio

ns

Wrap-Up and Looking Ahead

Key Takeaways

– The size of offset obligations worldwide is larger than commonly realized and is ona path to grow considerably in the coming years

– Analysis and strategy remain largely absent from the discussion and hinderssuccess

– Current approach towards offsets is suboptimal for companies, countries, partners,citizens, and employees

– Change brings new opportunities for forward-looking companiesand governments – successful offset approaches equals competitive differentiation

Actions

– Elevate offsets to become a company-wide and country-wide strategic priority

– “Offset Audit” of communications, capture, and business development processes

– Deeper partner and offset concept due diligence

– Broaden partners across sectors

15

• Philip Ewing (Moderator),POLITICO Pro

• Laura M. Creswell, ATK

• Bruce Lemkin, LEMKINInternational, LLC

• Paul A. O'Hop, Squire Sanders

Panel Discussion: Satisfying OffsetObligations Through Public-PrivatePartnership Opportunities

• John E. Wyand, Squire Sanders